Did anybody say that a coal for Power Policy will significantly reduce the cost of electricity?

WELL, let’s enter the fray on the use of coal for electricity production here in the Philippines. Seems like a topical subject and I am specifically not taking an environmentalist view, plenty of others have already done that.

Worldwide, coal is the biggest single fuel source for the production of electricity accounting for about 40 percent of the world’s electricity production and overall rising despite claims to the contrary, although the rise may be arrested if China pushes through with its declared coal reduction policies.

Big coal users include USA, China, Indonesia, South Africa and Australia. In China coal produces 70 percent of the electricity and in South Africa about 89 percent, much of which is exported to neighboring nations. It is important to note here that USA, China, Indonesia, South Africa and Australia are among the world’s biggest coal producers thus they are generating electricity by the use of an indigenous fuel source and they are all coal exporters. And the cost of electricity to consumers is low; in China it is $0.07-0.10/kWh, in South Africa $0.08-0.16/kWh, and Indonesia $ 0.09/kWh. By comparison the cost of electricity from all fuel sources in the Philippines overall is about $0.30- 0.32/kWh.

The Philippines does have some indigenous coal production mainly from the Semirara mine, which produces less than 30 percent of the needed coal for the current generation mix and as the future generation plans are for an increase of coal utilization the proportion to be satisfied by domestic resources will become much smaller and imports will increase dramatically.

To satisfy the future plans of the DoE, coal importation will reach about 40 MMT/year by 2030 compared to the end 2012 importation amount of 16 MMT/year. It is also worth noting that Philippine indigenous coal is low quality and that you need to use about twice as much of it compared to say Indonesian coal, in order to produce a kilowatt of electricity.

Thus Philippines coal is very expensive per kWh and also has much higher harmful emissions than imported coal.

As about 90 percent of Philippine coal imports are from Indonesia which is a considerably bigger archipelago [comprising about 18,000 islands compared to the 7,102 or so in the Philippines]and thus electricity needs are more widely dispersed, why is it that the cost of electricity in Indonesia is only about 29 percent of the cost of electricity here in the Philippines? One part of the answer to that is that electricity in Indonesia is heavily subsidized by the government at a cost of about $7 billion per year. In South Africa and China electricity costs are also subsidized but indirectly and to a much lesser degree.

Interestingly, Eskom the South African state-owned electricity utility has a pro-poor policy for consumers by which the first 50kWh/month consumed are free. Both Australia and the USA claim that there are no direct subsidies although subsidization is not always easy to detect—in Australia the cost to the consumer is $0.30/kWh and in the USA between $0.08 to 0.17/kWh. Electricity in the Philippines’ off-grid areas is also subsidized, not by government but by the consumers throughout the Philippines via a redistributive system at a cost of about Php4 Billion/year. If the Indonesian government subsidy were to be ignored, the true cost of electricity in Indonesia would be about $0.13/kWh, still only 42 percent of the electricity cost in the Philippines.

The Philippines is destined to import lots more coal, most likely from Indonesia, to satisfy future anticipated [“dreamed of”] industrial power demand, an increase in imports of about 250 percent over the next 15 years or so. Although most Indonesian coal mining is in Kalimantan which is not too far from the Philippines, there are transport cost to be taken into account, but there are also transport cost in Indonesia say from Balikpapan in Kalimantan to Medan in Sumatra [1,127 Nautical Miles] which is a lot further than Balikpapan to Manila [980 Nautical Miles]. It still requires some fairly wild flights of the imagination to justify a true cost of electricity in the Philippines at over two and a half times the true cost of electricity in Indonesia when it is the same coal that produces it!

While some rough rationalization can be done to support the historic cost of power in the Philippines; the BNPP fiasco, emergency power barges all over the place, much oil fired base load, natural gas providing a third of Luzon’s power linked to world oil prices, and over all that the general chaos of the sector, it is much more difficult to rationalize the current and future cost of electricity in what will be a predominantly coal-fired Philippines.

The generation cost of coal fired power in the Philippines is about $0.09-0.12/kWh to which must be added transmission and distribution costs, and the 10 to 15 other items [mostly various taxes]which make up the total electricity bill—and to get to the overall total cost it must be recognized that not all electricity is generated by coal; there is natural gas and there is still quite a lot of oil-fired power in off-grid areas and for use as peaking power on grid.

We cannot escape the fact that the generation cost alone of coal in the Philippines is almost the same as the delivered and unsubsidized cost of electricity in Indonesia—where 45 percent of power is produced from coal and 25 percent from oil giving a more expensive generation mix, at least according to the “coal lobby”. There is something very wrong somewhere and that wrongness is going to get a lot worse as the Philippines becomes so highly dependant on a single type of imported fuel which also has high indirect environmental costs, as well as that the Philippines will walk straight into a massively insecure “energy security” situation. And of course, as coal is an internationally traded commodity its cost will increase, at forecast rates of about 15 percent to 20 percent over the next 10 years; and you can bet that those increases will be passed straight through to the consumer. No surprise either that Indonesian magnates want to get into the Philippines power sector, but the distribution part of it interestingly.

It does make you wonder what motives are driving this rush to coal dependency and its catalyst a claimed “massive power shortage.” Is coal-fired power in the Philippines a fully vertically integrated business, mine to electricity output perhaps? And isn’t the cost of transmission, distribution, and all the other add-ons a lot. You really do have to wonder why electricity is so expensive in the Philippines, particularly when its transference from government to the private sector was promoted as introducing greater efficiencies and reducing costs!! International comparisons some of which are touched on in this piece show that it really is better to mandate the state to be responsible for electric power and protect the citizens from the unconstrained rapaciousness of the big business private sector.

But given the above analysis, a coal for power policy must reduce the cost of electricity, mustn’t it?—nobody has said yet by how much, though!